Which S&P 500 Index Should You Track?

Did you know there are two versions of the popular S&P 500 market index? The equally weighted version is similar to investing the same amount of money in each of the 500 stocks tracked. This varies from the more popular capitalization weighted version of the index, which is effected more by the movements of larger companies.

It has been widely reported that the S&P 500 averaged an annualized loss of 1% during the last decade (these statistics represent the performance of the cap-weighted version of the index). You might be surprised to learn that the equally weighted version of the index (ticker: S&P EWI) gained 6% annually over the same period, even though it invested in the exact same companies.

A main factor contributing to this disparity is the fact that the equally weighted version of the index is rebalanced quarterly, while the cap-weighted benchmark is not rebalanced. This is further evidence that rebalancing is a systematic strategy that’s intent on buying low and selling high.

Sidenote: The “Best Stocks, Best Funds” proprietary strategy utilized by Net Worth Advisory Group operates similarly to the equally weighted version of the S&P 500. For instance, each of our stock portfolios (large cap growth, international value, etc.) consist of 50 stocks with an equal investment in each stock. Consequently, we do not place larger bets on some companies than on others. Further, the “Best Stocks, Best Funds” strategy is rebalanced annually, normally near the beginning of each calendar year.

About the author

Lon Jefferies, CFP®, MBA
Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is an expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or lon@networthadvice.com. Learn more about Net Worth Advisory Group at http://networthadvice.com and visit Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

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